A delegation of the Financial Action Task Force, a Paris-based multilateral organization, has arrived in Pakistan to see how much progress Islamabad has made on money laundering and terrorist financing regulations since it was put on the grey list in June last year.

The FATF is an inter-governmental body that combats money laundering, terrorist financing and threats to the international financial system. It put Pakistan on its grey list last year because of deficiencies in the country’s Anti-Money Laundering and Countering of Terrorist Financing regulations.

The FATF’s team is made up of experts from Indonesia, China, the UK, Maldives, US, and Turkey. It will remain in Pakistan for two weeks (October 8-19). They will meet senior Pakistani officials and assess the country’s progress on the technical compliance with the Anti-Money Laundering and Countering of Terrorist Financing standards.

Black list next
Pakistan is a member of the Asia Pacific Group on money laundering, which falls under the FATF’s purview. We were put on the grey list because we didn’t make enough progress on addressing the deficiencies in our regulations, which threatens the international financial system. (Remember HBL, which was kicked out of New York with a fine of $225 million after it failed to comply with anti-money laundering regulations).

“There is evidence that criminals laundering funds in Pakistan are purchasing real estate, abusing corporate entities to access financial sector, laundering money through trade and abusing formal channels in Pakistan,” the Asia Pacific Group said in 2009.

Funds for terrorism came from crime like robbery, kidnapping for ransom and drugs flowing to and from Afghanistan. Cases surfaced of cash couriers and misuse of charities facilitating terrorist financing.

Pakistan has made money laundering and terrorist financing a crime but it has not been able to enforce these laws effectively.

Risks
Being on the grey list doesn’t come with any sanctions, but if we continue this way, we face the risk of being put on the black list. This is where it gets problematic. This means our banking system will be regarded as one with poor controls over Anti-Money Laundering and Countering of Terrorist Financing standards.

The FATF doesn’t impose any sanctions directly, but its guidelines are taken seriously by global financial institutions. This means overseas Pakistanis who send remittances to Pakistan will be subject to more scrutiny. The traders who deal in imports and exports will also suffer because they have to make and receive payments with the help of international banks that may either increase the costs for our banks or simply not do business with us.

“If we go out into the capital markets to raise [sovereign] bonds, we obviously do not want to be grey-listed,” former finance minister Miftah Ismail had said in an interview. “It is an embarrassment that we will have to face questions.”

Deficiencies in our banking system got us here, but this is not the first time we have been on the FATF’s grey list. We were removed from the grey list in February 2015 before being replaced on it.
Those familiar with the FATF working style say it will ask us for stricter banking regulations and rigorous enforcement of legislation on money laundering and terrorist financing. But more clarity on our situation will emerge when the FATF’s team wraps up its visit and shares its findings.